MN Finance wrote:Not comparing apples to apples, but if you're ok with the interest risk of an intermediate fund, then certainly the current yields will put you ahead by investing. That said, your expected return on the fund is not the current yield but rather the aggregate YTM of all the bond holdings, which will be less than the current yield. Given that unknown YTM, your net gain is probably minimal over the debt, and I'd rather not have an auto loan at all, so would pay it off.
The 2.42% figure that the OP quoted is the SEC yield, which is the yield to maturity of all the bond holdings. It's indeed a little hard to believe that figure after you add in the tax savings.
newpup: I do the same with an auto loan at ~1% that I intentionally keep on the books. Since it's below inflation, I consider that loan "free money" -- well, not really, we all know this is coming from the price of the car
(edit: ah, yours probably isn't) but we've paid that already and enjoy what it got us.
This all depends on your confidence in managing your finances and in your income stream. It may well be that the munis lose a bunch and the auto loan forces you to sell at a bad time. On the other hand, the loan provides extra liquidity since you won't be able to borrow at 1.5% on a whim in the future. Overall I would say it makes financial sense by the numbers; it doesn't gain you a lot since these loans are relatively short-term and small vs something like a mortgage; and it's ultimately a gut call. Hope this helps!